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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Lancashire Holdings Limited | LSE:LRE | London | Ordinary Share | BMG5361W1047 | COM SHS USD0.50 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -3.00 | -0.51% | 586.00 | 586.00 | 588.00 | 597.00 | 580.00 | 580.00 | 415,239 | 16:35:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Fire, Marine, Casualty Ins | 449.1M | 321.5M | 1.3460 | 4.36 | 1.4B |
Hot Features
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TIDMLRE
LANCASHIRE HOLDINGS LIMITED
29 July 2020
Hamilton, Bermuda
Lancashire Holdings Limited ("Lancashire" or "the Group") today announces its
results for the six months ended 30 June 2020.
Highlights:
* Resilient business model and operational capabilities despite COVID-19
global disruption; high productivity maintained.
* Gross premiums written increased by 15.3% year on year to $495.5 million,
ahead of rate, with the Group Renewal Price Index of 111%.
* Strong underlying underwriting performance, with a combined ratio of 88.9%
absent the COVID-19 loss estimate (106.9% including COVID-19).
* Investments rebounded in Q2, resulting in total net investment return of
1.3% for the six months ended 30 June 2020.
* Interim dividend of $0.05 per common share.
Six months ended
30 June 2020 30 June 2019
Financial highlights ($m)
Gross premiums written 495.5 429.6
Net premiums written 282.5 222.6
Underwriting income 39.4 79.4
(Loss) profit before tax (23.0) 40.5
Comprehensive (loss) income1 (14.7) 68.7
Financial ratios
Total investment return (including internal 1.3 % 3.2 %
currency hedging)
Net loss ratio 57.4 % 34.5 %
Combined ratio 106.9 % 86.6 %
1 These amounts are attributable to Lancashire and exclude non-controlling
interests.
Alex Maloney, Group Chief Executive Officer, commented:
"The global COVID-19 pandemic has presented a difficult set of threats to our
health, our societies and our economies which remain both fluid and uncertain.
Once again, I would like to thank all of our people at Lancashire for showing
their continued creativity and commitment, which has been so central to
demonstrating a robust operational flexibility and resilience, since
successfully moving to a home working environment in March 2020. This nimble
"can do" culture within our business has given Lancashire the resources to
continue to meet the needs of our clients and their brokers against this
unprecedented backdrop. Our underlying business has performed very well during
this period and we have been able to respond rapidly to take advantage of the
improving (re)insurance market, generating a 15% increase in gross premiums
written in the first half of the year.
In the face of the challenges generated by the COVID-19 pandemic to both sides
of the balance sheet, there has been a retrenchment in (re)insurance market
risk capital and capacity. In the year to 30 June 2020, we have witnessed
double-digit percentage rate increases in many of our lines of business and
accelerated rating dislocation in the catastrophe exposed reinsurance lines,
resulting in rises in the range of 20%-30% for 1 June renewals in Florida. I
believe that the economic fundamentals now dictate that this pricing trend is
likely to strengthen throughout 2020 and into 2021 across a number of our
business lines, and that current market conditions present an attractive
opportunity for growth consistent with our strategy of deploying capital in
line with the insurance market cycle.
We were pleased to have executed a successful equity capital raise as announced
on 10 June 2020. We took this step to allow us to deploy capital to take
advantage of the growth opportunities presented by the improving pricing
environment. I would like to thank our existing and new shareholders for their
strong support for the capital raise.
The effects of COVID-19 as a loss event to the insurance and reinsurance
markets remain both ongoing and uncertain. For Lancashire, the current
estimated impact of the COVID-19 loss event has been assessed consistent with
our usual internal processes for deriving ultimate loss estimates, albeit that
there is higher uncertainty with this event. During the second quarter of 2020,
we increased our COVID-19 loss estimate to approximately $42 million, from
approximately $35 million, net of reinsurance and reinstatement premiums. As
noted in the our Q1 trading statement, Lancashire does not write the following
lines of business: travel insurance; trade credit; accident and health;
Directors' and Officers' liability; medical malpractice; and long-term life.
The Group also has minimal exposure to mortgage business and is exposed to a
small number of event cancellation contracts.
In a rapidly changing market, we are seeing attractive opportunities to develop
many of our existing lines of business and to establish new ones. Our business
is well positioned to grow our underwriting portfolio and to develop
opportunities to improve the risk adjusted returns for our business and our
investors."
Natalie Kershaw, Group Chief Financial Officer, commented:
"For the first half of 2020 we generated an underwriting profit of $39.4
million and an overall comprehensive loss of $14.7 million. Our financial
results were impacted by the COVID-19 losses, plus a number of late reported
attritional claims from prior years. Excluding COVID-19 we did not incur any
new major losses in the first half of the year and we have seen significant
premium growth across all our underwriting segments. Our investment strategy
remains conservative and whilst our portfolio was impacted by the volatility
which occurred during the first quarter of 2020 as a result of the global
pandemic, I am pleased to note that for the year to 30 June 2020 our portfolio
recovered to generate a positive return of 1.3%.
In line with our stated ordinary dividend policy, on 28 July we declared an
ordinary interim dividend of $0.05 per share."
Underwriting results
Six months ended
Gross premiums written 2020 2019 Change Change RPI
$m $m $m % %
Property 300.1 268.5 31.6 11.8 107
Energy 91.7 76.4 15.3 20.0 110
Marine 53.5 45.4 8.1 17.8 113
Aviation 50.2 39.3 10.9 27.7 121
Total 495.5 429.6 65.9 15.3 111
Gross premiums written increased by 15.3% in the first six months of 2020
compared to the same period in 2019. The Group's four principal segments, and
the key market factors impacting them, are discussed below.
The increase in property gross premiums written was driven primarily by new
business across all of the property classes, with rate and exposure increases
also a strong contributor to the growth. Compared to the prior year, the second
quarter renewal season was particularly strong, and saw the Group benefit from
the hardening pricing environment. This contributed to significant growth in
the property catastrophe class of business in the second quarter. These
increases were partially offset by a reduction of premiums in the political
risk class, which is largely a non-renewing book, plus a reduced level of
reinstatement premium compared to the same period in 2019.
Energy gross premiums written increased primarily due to new business and rate
and exposure increases in the upstream energy, downstream energy and power
classes of business.
The increase in marine gross premiums written was primarily due to rate and
exposure increases across all lines of business supported by new business
growth in the marine cargo and the marine hull classes of business. The marine
segment also benefited from exposure increases on policies bound in prior
underwriting years.
Although the first half of the year is not a major renewal period for the
aviation segment, we saw a significant increase in gross premiums written
primarily due to new business and rate increases in the aviation deductible and
the aviation hull and liability classes of business, as well as exposure
increases on policies bound in prior underwriting years in the AV52 class.
*******
Ceded reinsurance premiums increased by $6.0 million, or 2.9%, in the first six
months of 2020 compared to the same period in 2019. The increased spend was
primarily due to cover purchased for newer classes of business. There was also
increased outwards quota share reinsurance spend as a result of the higher
inwards gross premiums written in the associated classes of business. These
increases were largely offset by lower outwards reinstatement premiums compared
to the prior year and a lower ceding percentage applied on some of the outwards
quota share contracts purchased.
*******
The Group's net loss ratio for the first six months of 2020 was 57.4% compared
to 34.5% for the same period in 2019. The accident year loss ratio for the
first six months of 2020, including the impact of foreign exchange
revaluations, was 55.4% compared to 40.5% for the same period in 2019.
Excluding the impact of COVID-19, the Group's net loss ratio was 40.0% and the
accident year loss ratio was 38.2%.
As at 30 June 2020, the Group's COVID-19 ultimate loss estimate, net of
reinsurance and reinstatement premiums, amounted to approximately $42 million.
This arose primarily from exposures within our property segment. Given the
ongoing nature of the COVID-19 pandemic and the uncertain impact on the
insurance industry, the Group's actual ultimate loss may vary, perhaps
materially, from the current estimate. The final settlement of all of these
claims is likely to take place over a considerable period of time.
Prior year unfavourable development for 2020 was $5.1 million, compared to
$15.9 million of favourable development for the same period in 2019. The
unfavourable development during the first six months of 2020 was primarily
driven by a number of late reported losses from the 2019 accident year, reserve
deterioration on a couple of marine claims in the 2017 and 2019 accident years,
in addition to adverse development on the 2010 New Zealand earthquake in the
property segment. The favourable development during the first six months of
2019 was primarily due to general IBNR releases across most lines of business,
offset somewhat by 2018 accident year claims in our property and energy
segments.
The table below provides further detail of the prior years' loss development by
class, excluding the impact of foreign exchange revaluations.
Six months ended
2020 2019
$m $m
Property (3.7) 4.8
Energy 11.6 1.1
Marine (14.5) 7.2
Aviation 1.5 2.8
Total (5.1) 15.9
Note: Positive numbers denote favourable development.
The table below provides further detail of the prior years' loss development by
accident year, excluding the impact of foreign exchange revaluations.
Six months ended
2020 2019
$m $m
2010 accident year and prior (5.6) 4.3
2011 accident year 0.3 1.9
2012 accident year 0.3 0.5
2013 accident year (0.2) 0.5
2014 accident year (0.5) (0.2)
2015 accident year 0.5 -
2016 accident year 0.4 9.0
2017 accident year (5.2) 10.0
2018 accident year 14.8 (10.1)
2019 accident year (9.9) -
Total (5.1) 15.9
Note: Positive numbers denote favourable development.
The ratio of IBNR to total net loss reserves was 34.8% at 30 June 2020 compared
to 34.8% at 30 June 2019.
Investments
Net investment income, excluding realised and unrealised gains and losses, was
$14.9 million for the first six months of 2020, a decrease of 24.0% from the
same period in 2019. Total investment return, including net investment income,
net other investment income, net realised gains and losses, impairments and net
change in unrealised gains and losses, was a gain of $22.0 million for the
first six months of 2020 compared to a gain of $57.1 million for the first six
months of 2019.
The Group's investment portfolio returned 1.3% for the first six months of
2020. As previously reported, the first quarter of 2020 produced a negative
investment return of 1.9% given market volatility due to the COVID-19 pandemic,
which then largely reversed in the second quarter resulting in quarterly gains
of 3.3%. The second quarter gains were seen across all asset classes that
benefited from significant U.S. fiscal stimuli. Fixed maturities recouped all
of the losses from the first quarter, with hedge funds, bank loans and private
debt funds still showing small losses on a year to date basis.
Returns in the first six months of 2019 were driven by a strong equity market
combined with both a decrease in treasury yields and a narrowing of credit
spreads. This resulted in positive performance in all asset classes,
particularly in the bank loan, equity and hedge fund portfolios.
The managed portfolio was as follows:
As at As at As at
30 June 2020 31 December 2019 30 June 2019
Fixed maturity 81.0 % 79.0 % 82.1 %
securities
Cash and cash 11.8 % 11.4 % 6.9 %
equivalents
Hedge funds 4.5 % 8.7 % 9.5 %
Private investment funds 2.7 % 0.9 % -
Equity securities - - 1.5 %
Total 100.0 % 100.0 % 100.0 %
Key investment portfolio statistics for our fixed maturities and managed cash
were:
As at As at As at
30 June 2020 31 December 2019 30 June 2019
Duration 1.9 years 1.8 years 1.8 years
Credit quality AA- A+ A+
Book yield 1.8 % 2.4 % 2.7 %
Market yield 1.1 % 2.1 % 2.4 %
Third Party Capital Management
The total contribution from third party capital activities consisted of the
following items:
Six months ended
2020 2019
$m $m
Lancashire Capital Management underwriting fees 2.7 1.9
Lancashire Syndicates' fees & profit commission 0.8 0.9
Total other income 3.5 2.8
Share of profit of associate 1.1 0.1
Total net third party capital management income 4.6 2.9
The higher Lancashire Capital Management underwriting fees in 2020 reflect the
increased level of premiums under management compared to 2019. The share of
profit of associate reflects Lancashire's equity interest in the Lancashire
Capital Management managed vehicle.
Other operating expenses
Other operating expenses were $55.1 million in the first six months of 2020
compared to $50.8 million in the first six months of 2019. An increase in
headcount, general salary increases and variability around incentive pay led to
an increase in employment costs. This was partly offset by a reduction in other
operating expenses and the favourable impact from the depreciation of Sterling
foreign exchange rates relative to the prior period.
Equity based compensation
The equity based compensation expense was $7.0 million in the first six months
of 2020 compared to $3.8 million in the first six months of 2019. The equity
based compensation charge was driven by anticipated vesting levels of active
awards based on current performance expectations.
Capital
On 10 June 2020 a total of 39,568,089 new common shares in Lancashire were
placed at a price of 700 pence per share, raising proceeds of $340.3 million
for the Company. The shares issued represented approximately 19.5% of the
issued common share capital of Lancashire prior to the placing.
As at 30 June 2020, total capital available to Lancashire was $1.830 billion,
comprising shareholders' equity of $1.506 billion and $323.7 million of
long-term debt. Tangible capital was $1.675 billion. Leverage was 17.7% on
total capital and 19.3% on total tangible capital. Total capital and total
tangible capital as at 30 June 2019 were $1.445 billion and $1.291 billion
respectively.
Per share data
Six months ended
30 June 2020 30 June 2019
Fully converted book value per share $6.16 $5.52
Return on equity1 7.2 % 6.9 %
Return on equity excluding the impact of the (1.0 %) 6.9 %
capital raise1
Dividends per common share for the financial $0.05 $0.05
year2
Diluted (loss) earnings per share ($0.13) $0.19
1 Return on equity is defined as the change in fully converted book value per
share, adjusted for dividends. See the section headed "Alternative Performance
Measures" below for further detail on how the Group defines return on equity.
2 See the section headed "Dividends" below for the Record Date and Dividend
Payment Date.
Dividends
Lancashire announces that on 28 July 2020 its Board of Directors declared an
interim dividend for 2020 of $0.05 (approximately GBP0.04) per common share,
which will result in an aggregate payment of approximately $12.1 million. The
dividend will be paid in Pound Sterling on 11 September 2020 (the "Dividend
Payment Date") to shareholders of record on 14 August 2020 (the "Record Date")
using the GBP / $ spot market exchange rate at 12 noon London time on the Record
Date.
Shareholders interested in participating in the dividend reinvestment plan
("DRIP"), or other services including international payment, are encouraged to
contact the Group's registrars, Link Asset Services, for more details at:
https://www.linkassetservices.com/shareholders-and-investors/
shareholder-services-uk.
Financial Information
The Unaudited Condensed Interim Consolidated Financial Statements for the six
months ended 30 June 2020 and the 2020 half year Financial Supplement are
published on Lancashire's website at www.lancashiregroup.com .
Analyst and Investor Earnings Conference Call
There will be an analyst and investor conference call on the results at 1:00pm
UK time / 9:00am Bermuda time / 8:00am EDT on Wednesday 29 July 2020. The
conference call will be hosted by Lancashire management.
Participant Access:
Dial in 5-10 minutes prior to the start time using the number / confirmation
code below:
United Kingdom Toll-Free: 08003589473
United Kingdom Toll: +44 3333000804
United States Toll-Free: +1 855 85
70686
United States Toll: +1 6319131422
PIN code: 46831254#
URL for additional international dial in numbers: https://
events-ftp.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf
The call can also be accessed via webcast, for registration and access: https:/
/onlinexperiences.com/Launch/QReg/ShowUUID=548AF467-7210-41FE-83C0-4FC47E9F9DFA
A webcast replay facility will be available for 12 months and accessible at:
https://www.lancashiregroup.com/en/investors/
results-reports-and-presentations.html
For further information, please contact:
Lancashire Holdings Limited
Christopher Head +44 20 7264 4145
chris.head@lancashiregroup.com
Jelena Bjelanovic +44 20 7264 4066
jelena.bjelanovic@lancashiregroup.com
FTI Consulting +44 20 37271046
Edward Berry Edward.Berry@FTIConsulting.com
Tom Blackwell Tom.Blackwell@FTIConsulting.com
About Lancashire
Lancashire, through its UK and Bermuda-based operating subsidiaries, is a
provider of global specialty insurance and reinsurance products. The Group
companies carry the following ratings:
Financial Financial Long Term
Strength Strength Issuer
Rating(1) Outlook(1) Rating(2)
A.M. Best A (Excellent) Stable bbb+
S&P Global Ratings A- Stable BBB
Moody's A3 Stable Baa2
(1) Financial Strength Rating and Financial Strength Outlook apply to
Lancashire Insurance Company Limited and Lancashire Insurance Company (UK)
Limited.
(2) Long Term Issuer Rating applies to Lancashire Holdings Limited.
Lancashire Syndicates Limited benefits from Lloyd's ratings: A.M. Best: A
(Excellent); S&P Global Ratings: A+ (Strong); and Fitch: AA- (Very Strong).
Lancashire has capital of approximately $1.8 billion and its common shares
trade on the premium segment of the Main Market of the London Stock Exchange
under the ticker symbol LRE. Lancashire has its head office and registered
office at Power House, 7 Par-la-Ville Road, Hamilton HM 11, Bermuda.
For more information, please visit Lancashire's website at
www.lancashiregroup.com.
The Bermuda Monetary Authority ("BMA") is the Group Supervisor of the
Lancashire Group with effect from 1 January 2019.
Lancashire Insurance Company Limited is regulated by the BMA, with its
registered office at Power House, 7 Par-la-Ville Road, Hamilton HM 11, Bermuda.
Lancashire Insurance Company (UK) Limited is authorised by the Prudential
Regulation Authority ("PRA") and regulated by the Financial Conduct Authority
("FCA") and the PRA, with its registered office at Level 29, 20 Fenchurch
Street, London EC3M 3BY, United Kingdom.
Lancashire Syndicates Limited is authorised by the PRA and regulated by the FCA
and the PRA. It is also authorised and regulated by Lloyd's, with its
registered office at Level 29, 20 Fenchurch Street, London EC3M 3BY, United
Kingdom.
Lancashire Capital Management Limited is regulated by the BMA, with its
registered office at Power House, 7 Par-la-Ville Road, Hamilton HM 11, Bermuda.
This release contains information, which may be of a price sensitive nature
that Lancashire is making public in a manner consistent with the EU Market
Abuse Regulation and other regulatory obligations. The information was
submitted for publication, through the agency of the contact persons set out
above, at 07:00 BST on 29 July 2020.
Alternative Performance Measures
As is customary in the insurance industry, the Group also utilises certain
non-GAAP measures ("Alternative Performance Measures" or "APMs") in order to
evaluate, monitor and manage the business and to aid users' understanding of
the Group. In compliance with the Guidelines on APMs of the European
Securities and Markets Authority, we give information on APMs in the table
below. This information has not been audited.
Management believes that the APMs included in this release are important for
understanding the Group's overall results of operations and may be helpful to
investors and other interested parties who may benefit from having a consistent
basis for comparison with other companies within the industry. However, these
measures may not be comparable to similarly labeled measures used by companies
inside or outside the insurance industry. In addition, the information
contained herein should not be viewed as superior to, or a substitute for, the
measures determined in accordance with the accounting principles used by the
Group for its audited consolidated financial statements or in accordance with
GAAP.
The following APMs included in this release have not been prepared in
accordance with the accounting principles used by the Group for its audited and
/ or interim consolidated financial statements. Below is an explanation of the
definition of these APMs as well as information regarding their relevance:
APM Definition Relevance
Net loss ratio Ratio, in per cent, of This ratio gives an
net insurance losses to indication of the amount
net premiums earned. of claims expected to be
paid out per $1.00 of net
premium earned in the
financial year.
Net acquisition cost Ratio, in per cent, of This ratio gives an
ratio net insurance acquisition indication of the amount
expenses to net premiums expected to be paid out
earned. to insurance brokers and
other insurance
intermediaries per $1.00
of net premium earned in
the financial year.
Net expense ratio Ratio, in per cent, of This ratio gives an
other operating expenses, indication of the amount
excluding restricted of operating expenses
stock expenses, to net expected to be paid out
premiums earned. per $1.00 of net premium
earned in the financial
year.
Accident year loss ratio The accident year loss This ratio shows the
ratio is calculated using amount of claims expected
the accident year to be paid out per $1.00
ultimate liability of net premium earned in
re-valued at the current an accident year.
balance sheet date,
divided by net premiums
earned.
Combined ratio Ratio, in per cent, of The Group aims to price
the sum of net insurance its business to ensure
losses, net acquisition that the combined ratio
expenses and other across the cycle is
operating expenses to net significantly less than
premiums earned. 100 per cent.
Fully converted book Calculated based on the Shows the Group's net
value per share ("FCBVS") value of the total asset value on a diluted
attributable to the Group shareholders' equity per share basis for
attributable to the Group comparison to the market
and dilutive restricted value per share.
stock units as calculated
under the treasury
method, divided by, the
sum of all shares and
dilutive restricted stock
units, assuming all are
exercised.
Return on equity ("RoE") The internal rate of The Group's aim is to
return of the change in maximise risk adjusted
(RoE is also sometimes FCBVS in the period, plus returns for its
referred to as the change dividends accrued. shareholders across the
in FCBVS adjusted for Tangible RoE attributable cycle.
dividends) to the Group excludes
intangible assets from
capital.
Total investment return Total investment return The Group's primary
measures investment investment objectives are
income and net realised to preserve capital and
and unrealised gains and provide adequate
losses produced by the liquidity to support the
Group's managed Group's payment of claims
investment portfolio. and other obligations.
Within this framework the
Group aims for a degree
of investment portfolio
return.
NOTE REGARDING RPI METHODOLOGY
THE RENEWAL PRICE INDEX ("RPI") IS AN INTERNAL METHODOLOGY THAT MANAGEMENT USES
TO TRACK TRS IN PREMIUM RATES OF A PORTFOLIO OF INSURANCE AND REINSURANCE
CONTRACTS. THE RPI WRITTEN IN THE RESPECTIVE SEGMENTS IS CALCULATED ON A PER
CONTRACT BASIS AND REFLECTS MANAGEMENT'S ASSESSMENT OF RELATIVE CHANGES IN
PRICE, TERMS, CONDITIONS AND LIMITS AND IS WEIGHTED BY PREMIUM VOLUME. THE RPI
DOES NOT INCLUDE NEW BUSINESS, TO OFFER A CONSISTENT BASIS FOR ANALYSIS. THE
CALCULATION INVOLVES A DEGREE OF JUDGEMENT IN RELATION TO COMPARABILITY OF
CONTRACTS AND THE ASSESSMENT NOTED ABOVE. TO ENHANCE THE RPI METHODOLOGY,
MANAGEMENT MAY REVISE THE METHODOLOGY AND ASSUMPTIONS UNDERLYING THE RPI, SO
THE TRS IN PREMIUM RATES REFLECTED IN THE RPI MAY NOT BE COMPARABLE OVER
TIME. CONSIDERATION IS ONLY GIVEN TO RENEWALS OF A COMPARABLE NATURE SO IT DOES
NOT REFLECT EVERY CONTRACT IN THE PORTFOLIO OF CONTRACTS. THE FUTURE
PROFITABILITY OF THE PORTFOLIO OF CONTRACTS WITHIN THE RPI IS DEPENT UPON
MANY FACTORS BESIDES THE TRS IN PREMIUM RATES.
NOTE REGARDING FORWARD-LOOKING STATEMENTS:
CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE MODELLED LOSS
SCENARIOS) MADE IN THIS RELEASE OR OTHERWISE THAT ARE NOT BASED ON CURRENT OR
HISTORICAL FACTS ARE FORWARD-LOOKING IN NATURE INCLUDING, WITHOUT LIMITATION,
STATEMENTS CONTAINING THE WORDS "BELIEVES", "ANTICIPATES", "PLANS", "PROJECTS",
"FORECASTS", "GUIDANCE", "INTS", "EXPECTS", "ESTIMATES", "PREDICTS", "MAY",
"CAN", "LIKELY", "WILL", "SEEKS", "SHOULD", OR, IN EACH CASE, THEIR NEGATIVE OR
COMPARABLE TERMINOLOGY. ALL SUCH STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL
FACTS INCLUDING, WITHOUT LIMITATION, THE FINANCIAL POSITION OF THE COMPANY AND
ITS SUBSIDIARIES (THE "GROUP"), THE GROUP'S TAX RESIDENCY, LIQUIDITY, RESULTS
OF OPERATIONS, PROSPECTS, GROWTH, CAPITAL MANAGEMENT PLANS AND EFFICIENCIES,
ABILITY TO CREATE VALUE, DIVID POLICY, OPERATIONAL FLEXIBILITY, COMPOSITION
OF MANAGEMENT, BUSINESS STRATEGY, PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE
OPERATIONS (INCLUDING DEVELOPMENT PLANS AND OBJECTIVES RELATING TO THE GROUP'S
INSURANCE BUSINESS) ARE FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER IMPORTANT
FACTORS THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE
GROUP TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.
THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO: THE ACTUAL DEVELOPMENT OF LOSSES
AND EXPENSES IMPACTING ESTIMATES FOR CLAIMS WHICH ARISE AS A RESULT OF THE
COVID-19 PANDEMIC WHICH IS AN ONGOING EVENT AS AT THE DATE OF THIS RELEASE,
TYPHOON HAGIBIS WHICH OCCURRED IN THE FOURTH QUARTER OF 2019, HURRICANE DORIAN
AND TYPHOON FAXAI WHICH OCCURRED IN THE THIRD QUARTER OF 2019, THE CALIFORNIAN
WILDFIRES AND HURRICANE MICHAEL WHICH OCCURRED IN THE FOURTH QUARTER OF 2018,
HURRICANE FLORENCE AND THE TYPHOONS THAT OCCURRED IN THE THIRD QUARTER OF 2018,
HURRICANES HARVEY, IRMA AND MARIA AND THE EARTHQUAKES IN MEXICO THAT OCCURRED
IN THE THIRD QUARTER OF 2017 AND THE WILDFIRES WHICH IMPACTED PARTS OF
CALIFORNIA DURING 2017; THE IMPACT OF COMPLEX AND UNIQUE CAUSATION AND COVERAGE
ISSUES ASSOCIATED WITH ATTRIBUTION OF LOSSES TO WIND OR FLOOD DAMAGE OR OTHER
PERILS SUCH AS FIRE OR BUSINESS INTERRUPTION RELATING TO SUCH EVENTS; POTENTIAL
UNCERTAINTIES RELATING TO REINSURANCE RECOVERIES, REINSTATEMENT PREMIUMS AND
OTHER FACTORS INHERENT IN LOSS ESTIMATIONS; THE GROUP'S ABILITY TO INTEGRATE
ITS BUSINESSES AND PERSONNEL; THE SUCCESSFUL RETENTION AND MOTIVATION OF THE
GROUP'S KEY MANAGEMENT; THE INCREASED REGULATORY BURDEN FACING THE GROUP; THE
NUMBER AND TYPE OF INSURANCE AND REINSURANCE CONTRACTS THAT THE GROUP WRITES OR
MAY WRITE; THE GROUP'S ABILITY TO IMPLEMENT SUCCESSFULLY ITS BUSINESS STRATEGY
DURING 'SOFT' AS WELL AS 'HARD' MARKETS; THE PREMIUM RATES WHICH MAY BE
AVAILABLE AT THE TIME OF SUCH RENEWALS WITHIN THE GROUP'S TARGETED BUSINESS
LINES; THE POSSIBLE LOW FREQUENCY OF LARGE EVENTS; POTENTIALLY UNUSUAL LOSS
FREQUENCY; THE IMPACT THAT THE GROUP'S FUTURE OPERATING RESULTS, CAPITAL
POSITION AND RATING AGENCY AND OTHER CONSIDERATIONS MAY HAVE ON THE EXECUTION
OF ANY CAPITAL MANAGEMENT INITIATIVES OR DIVIDS; THE POSSIBILITY OF GREATER
FREQUENCY OR SEVERITY OF CLAIMS AND LOSS ACTIVITY THAN THE GROUP'S
UNDERWRITING, RESERVING OR INVESTMENT PRACTICES HAVE ANTICIPATED; THE
RELIABILITY OF, AND CHANGES IN ASSUMPTIONS TO, CATASTROPHE PRICING,
ACCUMULATION AND ESTIMATED LOSS MODELS; INCREASED COMPETITION FROM EXISTING
ALTERNATIVE CAPITAL PROVIDERS, INSURANCE LINKED FUNDS AND COLLATERALISED
SPECIAL PURPOSE INSURERS, AND THE RELATED DEMAND AND SUPPLY DYNAMICS AS
CONTRACTS COME UP FOR RENEWAL; THE EFFECTIVENESS OF THE GROUP'S LOSS LIMITATION
METHODS; THE POTENTIAL LOSS OF KEY PERSONNEL; A DECLINE IN THE GROUP'S
OPERATING SUBSIDIARIES' RATINGS WITH A.M. BEST, S&P GLOBAL RATINGS, MOODY'S OR
OTHER RATING AGENCIES; INCREASED COMPETITION ON THE BASIS OF PRICING, CAPACITY,
COVERAGE TERMS OR OTHER FACTORS; CYCLICAL DOWNTURNS OF THE INDUSTRY; THE IMPACT
OF A DETERIORATING CREDIT ENVIRONMENT FOR ISSUERS OF FIXED MATURITY
INVESTMENTS; THE IMPACT OF SWINGS IN MARKET INTEREST RATES, CURRENCY EXCHANGE
RATES AND SECURITIES PRICES; CHANGES BY CENTRAL BANKS REGARDING THE LEVEL OF
INTEREST RATES; THE IMPACT OF INFLATION OR DEFLATION IN RELEVANT ECONOMIES IN
WHICH THE GROUP OPERATES; THE EFFECT, TIMING AND OTHER UNCERTAINTIES
SURROUNDING FUTURE BUSINESS COMBINATIONS WITHIN THE INSURANCE AND REINSURANCE
INDUSTRIES; THE IMPACT OF TERRORIST ACTIVITY IN THE COUNTRIES IN WHICH THE
GROUP WRITES RISKS; A RATING DOWNGRADE OF, OR A MARKET DECLINE IN, SECURITIES
IN THE GROUP'S INVESTMENT PORTFOLIO; CHANGES IN GOVERNMENTAL REGULATIONS OR TAX
LAWS IN JURISDICTIONS WHERE THE GROUP CONDUCTS BUSINESS; LANCASHIRE HOLDINGS
LIMITED OR ANY OF THE GROUP'S BERMUDIAN SUBSIDIARIES BECOMING SUBJECT TO INCOME
TAXES IN THE UNITED STATES OR IN THE UNITED KINGDOM; THE IMPACT OF THE CHANGE
IN TAX RESIDENCE ON STAKEHOLDERS OF THE COMPANY; AND NEGOTIATIONS REGARDING THE
UK'S RELATIONSHIP WITH THE EUROPEAN UNION ON THE GROUP'S BUSINESS, REGULATORY
RELATIONSHIPS, UNDERWRITING PLATFORMS OR THE INDUSTRY GENERALLY, FOLLOWING THE
UK'S EXIT FROM THE EUROPEAN UNION WHICH TOOK PLACE AT THE OF JANUARY 2020.
ALL FORWARD-LOOKING STATEMENTS IN THIS RELEASE SPEAK ONLY AS AT THE DATE OF
PUBLICATION. LANCASHIRE HOLDINGS LIMITED EXPRESSLY DISCLAIMS ANY OBLIGATION OR
UNDERTAKING (SAVE AS REQUIRED TO COMPLY WITH ANY LEGAL OR REGULATORY
OBLIGATIONS INCLUDING THE RULES OF THE LONDON STOCK EXCHANGE) TO DISSEMINATE
ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENT TO REFLECT ANY
CHANGES IN THE GROUP'S EXPECTATIONS OR CIRCUMSTANCES ON WHICH ANY SUCH
STATEMENT IS BASED. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE GROUP OR INDIVIDUALS ACTING ON BEHALF OF THE GROUP ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THIS NOTE. PROSPECTIVE INVESTORS
SHOULD SPECIFICALLY CONSIDER THE FACTORS IDENTIFIED IN THIS RELEASE WHICH COULD
CAUSE ACTUAL RESULTS TO DIFFER BEFORE MAKING AN INVESTMENT DECISION.
Consolidated statement of comprehensive (loss) income
Six months Six months
2020 2019
$m $m
Gross premiums written 495.5 429.6
Outwards reinsurance premiums (213.0) (207.0)
Net premiums written 282.5 222.6
Change in unearned premiums (129.3) (104.2)
Change in unearned premiums on premiums ceded 77.6 94.3
Net premiums earned 230.8 212.7
Net investment income 14.9 19.6
Net other investment (losses) income (15.5) 7.3
Net realised gains (losses) and impairments 10.6 (0.2)
Share of profit of associate 1.1 0.1
Other income 3.5 2.8
Net foreign exchange losses (3.9) (2.3)
Total net revenue 241.5 240.0
Insurance losses and loss adjustment expenses 159.2 152.0
Insurance losses and loss adjustment expenses (26.8) (78.6)
recoverable
Net insurance acquisition expenses 59.0 59.9
Equity based compensation 7.0 3.8
Other operating expenses 55.1 50.8
Total expenses 253.5 187.9
Results of operating activities (12.0) 52.1
Financing costs 11.0 11.6
(Loss) profit before tax (23.0) 40.5
Tax charge (3.0) (1.4)
(Loss) profit after tax (26.0) 39.1
Non-controlling interests - -
(Loss) profit after tax attributable to Lancashire (26.0) 39.1
Net change in unrealised gains/losses on investments 12.0 30.4
Tax charge on net change in unrealised gains/losses on (0.7) (0.8)
investments
Other comprehensive income 11.3 29.6
Total comprehensive (loss) income attributable to (14.7) 68.7
Lancashire
Net loss ratio 57.4 % 34.5 %
Net acquisition cost ratio 25.6 % 28.2 %
Administrative expense ratio 23.9 % 23.9 %
Combined ratio 106.9 % 86.6 %
Basic (loss) earnings per share $ (0.13) $ 0.19
Diluted (loss) earnings per share $ (0.13) $ 0.19
Change in fully converted book value per share 7.2 % 6.9 %
Consolidated balance sheet
As at 30 As at 30 As at 31
June 2020 June 2019 December
2019
$m $m $m
Assets
Cash and cash equivalents 496.5 232.8 320.4
Accrued interest receivable 7.3 6.6 7.2
Investments 1,689.6 1,581.3 1,525.1
Inwards premiums receivable from insureds and 459.1 425.4 350.5
cedants
Reinsurance assets
- Unearned premiums on premiums ceded 167.1 151.0 89.5
- Reinsurance recoveries 323.1 306.4 327.5
- Other receivables 27.6 43.2 16.9
Other receivables 33.3 56.2 51.7
Investment in associate 81.5 65.2 108.3
Property, plant and equipment 0.9 1.3 1.2
Right-of-use asset 16.8 19.5 18.2
Deferred acquisition costs 96.8 84.8 81.7
Intangible assets 154.5 153.8 154.5
Total assets 3,554.1 3,127.5 3,052.7
Liabilities
Insurance contracts
- Losses and loss adjustment expenses 888.6 884.1 874.5
- Unearned premiums 535.7 474.8 406.4
- Other payables 26.4 40.8 27.4
Amounts payable to reinsurers 179.6 178.2 126.6
Deferred acquisition costs ceded 17.2 11.4 17.6
Other payables 42.0 54.7 47.5
Corporation tax payable 1.6 2.1 2.4
Deferred tax liability 12.2 12.3 9.6
Interest rate swap 1.3 1.4 1.1
Lease liability 19.6 22.5 21.9
Long-term debt 323.7 324.1 323.5
Total liabilities 2,047.9 2,006.4 1,858.5
Shareholders' equity
Share capital 121.3 101.0 101.5
Own shares (6.7) (5.3) (13.3)
Other reserves 1,202.3 867.9 881.3
Accumulated other comprehensive income 24.8 15.3 13.5
Retained earnings 164.4 141.9 210.6
Total shareholders' equity attributable to 1,506.1 1,120.8 1,193.6
equity
shareholders of Lancashire
Non-controlling interest 0.1 0.3 0.6
Total shareholders' equity 1,506.2 1,121.1 1,194.2
Total liabilities and shareholders' equity 3,554.1 3,127.5 3,052.7
Basic book value per share $6.23 $5.57 $5.92
Fully converted book value per share $6.16 $5.52 $5.84
Consolidated statement of cash flows
Six Six
months months
2020 2019
$m $m
Cash flows (used in) from operating activities
(Loss) profit before tax (23.0) 40.5
Tax paid (1.2) -
Depreciation 1.7 2.0
Interest expense on long-term debt 8.2 9.4
Interest expense on finance leases 0.6 0.7
Interest and dividend income (17.9) (19.2)
Net amortisation of fixed maturity securities 1.6 (1.0)
Equity based compensation 7.0 3.8
Foreign exchange losses 0.1 2.0
Share of profit of associate (1.1) (0.1)
Net other investment losses (income) 15.0 (7.3)
Net realised losses (gains) and impairments (10.6) 0.2
Net unrealised losses on interest rate swaps 0.2 1.0
Changes in operational assets and liabilities
- Insurance and reinsurance contracts (10.1) (51.2)
- Other assets and liabilities 14.3 (9.0)
Net cash flows (used in) from operating activities (15.2) (28.2)
Cash flows (used in) from investing activities
Interest and dividends received 19.0 19.4
Purchase of property, plant and equipment - (0.6)
Purchase of underwriting capacity - -
Investment in associate 27.9 2.0
Purchase of investments (619.3) (522.9)
Proceeds on sale of investments 458.4 639.6
Net cash flows (used in) from investing activities (114.0) 137.5
Cash flows from (used in) financing activities
Interest paid (8.3) (9.4)
Lease liabilities paid (1.8) (1.8)
Proceeds from issuance of common shares 340.3 -
Dividends paid (20.2) (20.1)
Dividends paid to minority interest holders (0.5) -
Distributions by trust (0.7) (1.0)
Net cash flows from (used in) financing activities 308.8 (32.3)
Net increase in cash and cash equivalents 179.6 77.0
Cash and cash equivalents at the beginning of year 320.4 154.6
Effect of exchange rate fluctuations on cash and cash (3.5) 1.2
equivalents
Cash and cash equivalents at end of period 496.5 232.8
END
(END) Dow Jones Newswires
July 29, 2020 02:00 ET (06:00 GMT)
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